How to minimise taxes and fiscal charges

The approval in Spain of the General State Budget for 2021, “PGE”, is expected in December 2020 and will be the first new budget since Montoro’s 2018 accounts, which had been extended to date. With effect from 1 January 2021, the most relevant fiscal modifications contemplated in the PGE bill are as follows:

Personal Income Tax (IRPF)

1. New entry in the general scale

Modification of article 63 of the Personal Income Tax Act, adding a section to the general scale for general taxable income from 300,000 euros, with a tax rate of 24.50%. The new personal income tax (IRPF) table is as follows:

Net base / Up to euros Full fee /Euros Remaining taxable income / Up to euros Applicable rate / Percentage
0,00 € 0,00 € > 12.450,00 € 9,50 %
> 12.450,00 € 1.182,75 € > 7.750,00 € 12,00 %
> 20.200,00 2.112,75 € > 15.000,00 15,00 %
> 35.200,00 4.362,750 € > 24.800,00 18,50 %
> 60.000,00 8.950,75 € > 240.000,00 22,50 %
> 300.000,00 62.950,75 € From now on 24,50 %

This change, among others, affects personal income from employment, income from economic activities and income from real estate capital. It also affects the withholding tax brackets for earned income, to which must be added the regional scales, so that in some regions the marginal rate can be as high as 50%. Savings alternatives:

  • 300,000, it may be advisable to negotiate with the company to bring forward part of the variable remuneration to 2020, e.g. payment of bonuses linked to production, payment of incentives based on sales, payment of bonuses to managers, technicians or payment of bonuses, etc.

It should be noted that this increase only affects people with high salaries, such as senior managers or executives.

2. New paragraph on the allowed amount of tax savings

Article 66 of the Personal Income Tax Act is amended, adding a section to the tax savings scale for taxable savings income from 200,000 euros, with a tax rate of 26%: New section of the scale of the savings.

Savings tax base / Up to euros Full fee / Euros Remaining Savings tax base / Up to euros Applicable rate / Percentage
0,00 € 0,00 € > 6.000,00 € 19,00 %
> 6.000,00 € 1.140,00 € > 44.000,00 € 21,00 %
> 50.000,00 € 10.380,00 € > 150.000,00 23,00 %
> 200.000,00 44.880,00 € From now on 26,00 %

This amendment affects income from movable capital, e.g. dividends, interest on accounts or loans, capital gains from shares, investment funds or the sale of a home. Savings alternatives:

  • It may be advisable to bring forward to 2020 sales, for example, a property owned that may generate capital gains in order to avoid the 26% tax on the part of the gain that exceeds 200,000 euros.

In the event that the sale price was 350,000 euros and the purchase price at the time was 100,000 euros, selling the property in the short term and bringing it forward to 2020 instead of doing so in 2021, would mean, for example, a saving of 1,500 euros.

The same would happen in the case of dividends, if a large amount is expected to be received and it is declared in 2020, there will be a saving of 3% on the dividend to be received that exceeds 200,000 euros.

3. Limitation of the reduction of the tax base for social security contributions and contributions to social security schemes

Article 51 of the Personal Income Tax Act is amended. It reduces the set of reductions applied by all persons who pay bonuses in favour of the same taxpayer, including their own, which now may not exceed €2,000 per year, whereas previously this limit was €8,000.

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This includes contributions to private pension plans, mutual insurance companies, company pension plans, and insurance for severe or high dependency, etc. However, the limit of 2,000 euros can be increased to 8,000 euros (total up to 10,000 euros) in the case of company contributions, e.g. contributions made by the individual employer to employees’ pension plans.

Savings alternatives:

  • It is not fiscally advisable to contribute more than 2,000 euros to these plans after 2020, so it may be advisable to make contributions up to 8,000 euros before the end of the year because from 2021 onwards the reduction clearly decreases.

In any case, it should be borne in mind that contributions are not taxed while saving, but are taxed when they are withdrawn, as is the case, for example, with earned income, which may also be taxed at a higher rate than savings income.

Wealth Tax (IP)

Article 30 of the Law on Intellectual Property is modified, in which the maximum tax rate increases from 2.5% to 3.5% for assets exceeding 10.65 million euros, in the case of the Autonomous Communities that have not approved their own scale.   The new section of the wealth tax (IP) would read as follows:

Net base / Up to euros Full fee / Euros Remaining taxable income / Up to euros Applicable rate / Percentage
0,00 € 0,00 € > 167.129,45 € 0,2 %
> 167.129,45 € 334,26 € > 7.750,00 € 0,3 %
> 334.252,88 € 835,63 € > 167.123,43 0,5 %
> 668.499,75 2.506,86 € > 668.499,76 € 0,9 %
> 1.336.999,51 € 8.523,36 € > 1.336.999 € 1,3 %
> 2.673.999,01 € 25.904,35 € 2.673.999,02 1,7 %
> 5.347.998,03 € 71.362,33 € 5.347.998,03 2,1 %
> 10.695.996,06 € 183.670,29 € From now on 3,5 %

However, taking into account that among the autonomous communities with their own IP regulations, some include bonuses of up to 100%, as in the case of the Community of Madrid, the Government has announced that the IP legislation will be harmonised for the whole territory, although this measure cannot yet be included in the 2021 PGE Law.

Savings alternatives:

  • For taxpayers who are affected by this increase with a much more limited scope than the aforementioned changes in Personal Income Tax, due to the fact that it only affects some territories and assets of more than 10.65 million euros. In this case, it should be borne in mind that the IP is accrued on 31 December of each year, so an excess of 10.65 million euros in wealth will be taxed one percentage point more in 2021 than in 2020.

The assets affected include real estate, assets assigned to economic activities, bank deposits and listed shares, so the margin for savings from this increase in the tax rate is rather limited. Furthermore, the Draft Law on the Prevention of and Fight against Tax Fraud stipulates that, in the case of real estate, the taxable base will be the reference value established in the regulations governing the Real Estate Cadastre and, on the date on which the tax is due, this measure also affects the ITPAJD and the ISD.

However, if the value declared by the interested parties or the prior or agreed consideration, or both, are higher than the reference value, the higher of these amounts will be taken as the taxable base. And, only if there is no reference value, the tax base will be higher than the value declared by the interested parties, be it the sale price or the market value. This reference value is based on all real estate sales made and formalised before a notary, calculated according to fair and transparent technical rules set by the Cadastre.

Corporate Income Tax (IS)

Article 21 of the Income Tax Act is amended, reducing by 5% the exemption for dividends and capital gains on the transfer of securities representing equity, so that the exempt amount, which was previously 100%, will now be 95% of such dividends or capital gains.

However, this reduction will not apply if the following circumstances are met:

a) The entity receiving these dividends or capital gains has a net turnover of fewer than 40 million euros. In addition, the entity receiving these dividends or capital gains must meet all these requirements:

  1. Not being considered as an asset-holding entity.
  2. Not form part of a group of companies prior to the incorporation of the entity distributing the dividends.
  3. Not have a direct or indirect shareholding, directly or indirectly, in the capital or equity of another entity equal to or greater than 5% prior to the incorporation of the entity distributing the dividends.

b) The dividends or capital gains derived from an entity incorporated after 1 January 2021, in which the entire capital or equity is held directly and since incorporation.

c) Finally, the dividends or capital gains must be received in the three tax periods immediately following the year of incorporation of the entity distributing them.

4. It is a holding company, which forms part of a group of companies, even if it has a net turnover of less than 40 million, in which case the exemption goes from 100% to 95%.

5. The entity has more than 5% of shares in another entity which is not the one distributing dividends and although the former has a net turnover of less than 40 million, the exemption goes from 100% to 95%.

6. And finally, although it has a net turnover of less than 40 million, it does not form part of a group of companies (1) or has more than 5% in an entity other than the entity distributing the dividends (2). a) will only be entitled to the 100% exemption if it holds, over the entity distributing the dividends, 100% of its capital or equity, and only if the same entity has been incorporated as of 1 January 2021.

Savings alternatives:

  • For those cases that may be affected by the reduction of this exemption from 100% to 95%, it may be advisable to bring forward the distribution of dividends or the sale of securities that generate capital gains to 2020 due to the tax saving of the 5% that will no longer be exempt.

As we have seen, this will be the case in the vast majority of cases as the requirements for the reduction of the exemption are very demanding.

Additional fiscal measures

The PGE Bill also provides for the modification of the tax rate on beverages containing sweeteners from 10% to 21%, as well as the increase of the Premium Tax rate from 6% to 8%.

Measures not contemplated in the PGE Law

Although these measures are not yet contemplated in the first draft published in the Cortes, it is expected that they will be included in the processing of the Law on the Prevention and Fight against Tax Fraud:

  • SOCIMI: Application of a 15% corporate income tax rate on the undistributed profits of these types of entities, which currently have a 0% rate on income derived from their real estate activity, e.g. dividends to their members.
  • SICAVs: Grant the Tax Agency the power to check that they meet the requirements to be set up as collective investment vehicles and not as a tax planning instrument for large family fortunes and declare non-compliance with these requirements for tax purposes only.
  • “Unit-linked: It is envisaged that they will no longer be exempt from wealth tax.
  • The general limit for cash payments is reduced from €2,500 to €1,000.

The already approved Tobin and Google taxes, which came into force on 16 January, are also new for 2021. The former levies a 0.2% tax on the purchase of shares in Spanish-listed companies with a capitalisation of more than €1 billion, while the latter levies a 3% tax on the sale of data, advertising and digital intermediation.

As these are new taxes, they were approved separately from the PGE last October. Environmental taxes are also being created, such as the tax on non-reusable plastic packaging and the tax on waste, which already existed in some autonomous communities.

Do not hesitate to contact our tax advisor in Barcelona at GM Tax Consultancy if you have any doubts regarding any tax issues.

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